Top Business Strategy Ideas

The conventional wisdom within the banking industry about its troubles since the recent global financial crisis goes something like this: Rightly or wrongly, regulators imposed new rules that forced banks, particularly in the U.S. and Europe, to adopt new, less risky (and less rewarding) business strategies. The challenges of enforced constraint were exacerbated by macroeconomic developments, lack of customer trust, new digital technologies, and upstart financial technology–oriented competition — in other words, by external factors the banks had little ability to influence.

But the most critical factor constraining banks after the financial crisis was not external at all. It was the banks’ own strategy. When they took steps to become coherent, they began to recover and thrive.

A study conducted by Strategy&, PwC’s strategy consulting group, analyzed banking performance during and after the financial crisis. We found a strong correlation between strategic coherence, performance, and recovery. (Coherence, in this context, means the degree of alignment among a company’s strategy, its capabilities, and the portfolio of products and services it offers.) Among the 17 large banks that we studied, all based in Europe or North America with operations around the world, the most coherent in 2007 were the most stable performers throughout the seven years that followed. As for the rest, those that moved decisively after the crisis to become more coherent saw the greatest performance improvement. Other banks — those that took either tentative steps or none at all — took longer to recover.

In studies of coherence in business — such as Strategy That Works, by Paul Leinwand and Cesare Mainardi (Harvard Business Review Press, 2016) — it’s rare to hear financial-services companies mentioned. So we set out to explore whether coherence could make a difference in banking. The answer appears to be a resounding yes.

We knew that incoherence had been rampant in the sector during the years leading up to the financial crisis. Many banks had moved aggressively into new high-growth lines of business such as investment banking and the trading of complex financial products. Our hypothesis was that in some cases, firms pushed into these growth areas too rapidly and indiscriminately. They got caught up in a classic growth treadmill: chasing multiple market opportunities without the capabilities needed to win. A few large banks had been more coherent than the rest. How strong was the link between coherence and financial performance?